RBI likely conducted $600-$800 million USD/INR swaps on Tuesday: Traders

Reserve Bank of India (RBI) likely conducted dollar-rupee buy/sell swaps for about $600 million-$800 million on Tuesday, while intervening in spot forex market to prevent rupee from sharper depreciation, five trers said on Wednesday.

In a dollar-rupee buy/sell swap, an entity buys dollars on spot date and sells m at a later date.

one-month swap was likely intended to neutralise liquidity impact of RBI's spot market dollar sales on Tuesday and to absorb inflows into Indian debt and equity markets, a foreign exchange trer at a state-run bank said.

At time of maturity of one-month swap, RBI can absorb inflows to raise dollars, lowering ir impact on spot dollar-rupee rate, trers said.

Foreign inflows into India have jumped over past few weeks and trers expect m to be robust near-term.

Overseas investors have bought Indian equities worth $2.5 billion so far in December, pushing monthly tally to highest since July. Indian bonds have attracted inflows worth $437 million in December after a 6-year peak inflow of $1.78 billion in vember.

Indian rupee was last quoted at 83.35 against US dollar and has depreciated about 0.7% in year so far.

"RBI's simultaneous FX operation via spot and derivative route is hinting at desire for making such interventions neutral for domestic rupee liquidity," Vivek Kumar, an ecomist at QuantEco Research, said.

With India's core banking system liquidity in surplus and inflation expected to inch up, central bank would be wary of any unintentional easing of monetary conditions, he ded.

RBI may continue intervening in FX markets to prevent a sharp depreciation in rupee, Swati Arora, a senior ecomist with HDFC Bank said.